Correlation Between SBM Offshore and AEX Amsterdam

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Can any of the company-specific risk be diversified away by investing in both SBM Offshore and AEX Amsterdam at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining SBM Offshore and AEX Amsterdam into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SBM Offshore NV and AEX Amsterdam Index, you can compare the effects of market volatilities on SBM Offshore and AEX Amsterdam and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in SBM Offshore with a short position of AEX Amsterdam. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBM Offshore and AEX Amsterdam.

Diversification Opportunities for SBM Offshore and AEX Amsterdam

-0.4
  Correlation Coefficient

Very good diversification

The 3 months correlation between SBM and AEX is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and AEX Amsterdam Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEX Amsterdam Index and SBM Offshore is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on SBM Offshore NV are associated (or correlated) with AEX Amsterdam. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEX Amsterdam Index has no effect on the direction of SBM Offshore i.e., SBM Offshore and AEX Amsterdam go up and down completely randomly.
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Pair Corralation between SBM Offshore and AEX Amsterdam

Assuming the 90 days trading horizon SBM Offshore NV is expected to generate 2.03 times more return on investment than AEX Amsterdam. However, SBM Offshore is 2.03 times more volatile than AEX Amsterdam Index. It trades about 0.07 of its potential returns per unit of risk. AEX Amsterdam Index is currently generating about 0.05 per unit of risk. If you would invest  1,677  in SBM Offshore NV on September 1, 2024 and sell it today you would earn a total of  35.00  from holding SBM Offshore NV or generate 2.09% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy95.65%
ValuesDaily Returns

SBM Offshore NV  vs.  AEX Amsterdam Index

 Performance 
       Timeline  

SBM Offshore and AEX Amsterdam Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SBM Offshore and AEX Amsterdam

The main advantage of trading using opposite SBM Offshore and AEX Amsterdam positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBM Offshore position performs unexpectedly, AEX Amsterdam can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in AEX Amsterdam will offset losses from the drop in AEX Amsterdam's long position.
The idea behind SBM Offshore NV and AEX Amsterdam Index pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.

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